Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20180117

Bank of america, saying they expected benefit from higher Interest Rates and a lower Corporate Tax rate. Brian moynihan says that pretax earnings rose year on year. There is what it is doing, up by 3 10 of a percent. Not Much Movement either way. Allison is joining us. Surface this looks like a pretty solid report. Walk us through it. Allison still going through the numbers, but so far so good. Trading is a number we always look at, a little bit better. Fixed income is a little better, equities a little better, in banking they had a oneoff charge. David who do we think that might be . 880 million driven by a single name, nonus commercial chargeoff. David South African maybe . Alix steinhoff . Allison and i guess the surprising thing would be if you did not see it. Alix it is exposure i think. Allison we were joking the other day, the term episodic, but that is a better term than a oneoff or not occurring, because it is the cost of doing business. David the other thing we do not see is what they expect in terms of the effect of tax rate effective tax rate going for the forward. The havenots of is what they expect for next year. Allison that was one of the first things i look for and i did not see it in the documents either. On other banks have come in the bullish side of expectation, so people are expecting from bank of america, citi at the 25 , but they are more global than other peers. Jpmorgan, wells fargo, 19 . We will see if bank of america will good more information. Alix we have someone on the phone, Charles Walker through the initial take on the numbers. Charles yeah, the bottom line number looks good, the top line number was a small miss in terms of revenues. But what is surprising is how strong the Capital Market revenues were. They probably have the best investment quarter of any of the big banks and one of the better trading quarters. Alix does that mean that they still market share, or they are getting more clients . Charles i it is hard to tell at this point. Tends not tomerica have the big swings the other banks might have. They tend to be modest in how they manage that operation. David by moynihan is more concerned Brian Moynihan is more concerned about risk and profitability. Do we have any sense of what the margins are like coming out of these numbers . Charles the Net Interest Margin this quarter was much better than expected, it was 2. 39 . And they are one of the more asset sensitive banks that benefit from rising rates and a steepening yield curve. Going back to his responsible growth theme, what they are trying to do is create quarters of predictability, rather than swings from one quarter to the other, and that is what they are laying out now, the sequential quarters of steady or needs of steady earnings. David credit losses, does this surprise you . Does it indicate weakness . Allison i think we have to strip it out and really i think it is more important to go line by line and look at the core numbers for each of the businesses, because of the responsible Growth Strategy and they have not been as aggressive, we would expect credit to come in perhaps solid this quarter, we have seen the solid results from other banks. The other thing i would say in terms of fixed income trading and the business, bank of america has a more credit versus other banks, that is outperforming over the past year. Last year it was the currency in rates business that was stronger. Those are really the forte of jpmorgan and bank of america also strong in that. But more u. S. Focused and credit focused, so sometimes we talk about market share gains, but the Charles Point that is something you can see only over time, but quarter to quarter it could be the shift of what is performing and what is not. Alix what about Goldman Sachs in 25 minutes . Charles let me mention one thing on davids question. The billion dollar charge of provisions, pretty much in line with expectations, but it still probably is half of what a normalized provision will be once Corporate Credit starts to normalize. They are benefiting from benign creditthey are benefiting from n credit cost right now. In terms of goldman, the question on Goldman Sachs is really what is going on with their trading business, particularly commodities. My understanding is the commodity business was very weak on an annual basis in 2017, but probably bottomed in the Second Quarter and got better by the end of the year. Also theere is costcutting, there was the report that expenses were down. How are they doing on the annual target . Charles they have reiterated a target of 53 billion in cuts of expenses, so 2. 3 billion shows they are on track. Alix and more color as the numbers come through, on the loanloss provisions and other areas, so in terms of Consumer Banking provisions they actually fell to 886 million. You also saw the amount of consumer loans 30 days past due billion,ping to 8. 8 so that would seem to imply that the consumer is healthy versus stripping out the steinhoff, the chargeoff could have doubled because of steinhoff. Alison keep in mind mortgage, we see mortgage improvement, so that is on the core business, that is where we have seen the pickup and losses. And to the point of charles, investors are looking at the cycle in moving toward normalization. We are far away, but the one business that is improving where we see the reserve releases and improving credit at the bank is the Mortgage Business and my guess is that there will be another reserve release from bankamerica, but strong credit offsetting the other issues. David one thing i have not seen, do we have any sense of the lending . The has been a target for them. Charles i have not had a chance to look at that david, but i know that they have been culling some portfolios, derisking some portfolios, and a has been a drag on their overall loan growth, but in the thirdquarter you see revival of total loan growth and i suspect the Fourth Quarter showed additional improvements. I say that because while the Net Interest Income was the surprise in terms of total revenue, and there was a volume related component that caused the surprise. Alix to piggyback on that, Consumer Banking, we learned loans were up 9 , deposits up it percent, hitting a record thank you so much, alison for u. S. Bank, and charles peabody. Is sick withharles the flu, we appreciate it. Now an update on headlines. Here is first word news. Reporter on cover hokum has revoked can leaders trying to come up with a stopgap spending bill that would prevent a shutdown on friday. Lawmakers say the measure would delay obamacare taxes and provide money for Childrens Health insurance programs. They cannot pass unless it has been the credit but in the senate. Steve bannon now faces two subpoenas in the russian investigation. According to a person familiar with the matter, he was subpoenaed by robert mueller. The House Intelligence Committee has issued their own subpoena. He will appear he appeared before the panel yesterday. But they say he is far from answering many of the committees questions. And rebuking European Central Bank Mario Draghi for attending meetings of the group of 30. The eu says he has failed to demonstrate that taking part in the forum serves the public interest. The ecb says it will respond in due course. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im kailey leinz. This is bloomberg. Alix thank you. Coming up, the great yield curve steepening of 2008 has come and gone in like 24 hours. We will assess that next. And taking a look at bank of america as we go to break, up 3 10 of a percent, goldman is also up. Solid quarter for bank of america despite the 3 billion charge related to taxes. We will break it down more. This is bloomberg. Alix time for our first take, where we discuss top three stories. Getting the read on bank of america, Goldman Sachs is up in 15 minutes. The flattening curve takes the reins, 530 is a decade low, the euro is weak or for a second day and the ecb warns the fundamentals are not there to support it stronger euro. David joining us is days at a better executive editor Tracy Alloway. Michael, good to have you here. And the discussion of thanks. We banks. We are looking at the earnings. Bank of america does not rely on this as much as jpmorgan, but they come in really well across the board. Better than expected. Mike i think the explanation for fixed is a fairly easy to discern. If you look at this chart that brought, that i volatility in the bond market. The Fourth Quarter a year ago has a lot more volatility than this year, so you have a tough comparison for most of these banks, as well as lower volatility, so it will be hard for them to make money and to compared to last year, it could be a lot worse. Alix looking ahead to goldman was potentially 75 year low in total Commodity Trading and it seems like the Fourth Quarter was better, this quarter so far is better, but the headline will bite. It will hurt his legacy at j. Aaron, he will be looking at Morgan Stanley, their archrival, and going what the heck happened . That is an open question. You can look at volatility in the market, bearing in mind goldman does not break out the Commodity Trading revenue from the overall fixed. Volatility is low, but you have open question is about regulation, about whether customers and their behavior has changed. You have a huge question mark over the strategy itself. I am old enough to remember back in 2011 we were having a debate on whether the downturn in fixed was secular or cyclical, and the longer that we do not get the pick up in revenue, the more pressure there is going to be on the strategy, more questions over whether this is actually a lic oh event, which cyclical event, which goldman has been hanging onto. David you have heard about goldman, how long can they have the excuse of the customer . Tracy they are trying to hire, they had an internal review, but how do you measure success, because if you have overall low volatility you cannot measure success with a revenue number. Alix is it the people you hire, streamlining the business . I am not sure that we know it quite yet. Markets, market, consumer lending, look at that. David in the meantime, Morgan Stanley, is really doing pretty well, having cut back on staff. And they are doing better. Mike maybe it is a quest of how you trade, Smart Trading perhaps. It is a different strategy. The powert is it and the natural gas hedge goldman that got killed. We are watching the yield curve. Take a look at the bloomberg. This is to me, 530 under 50 basis points, and really broke below that. What . I do not even have a question. At what point will the fed be like, guys . Mike they will not worry about it until goes below zero and stays. This is what they expect. They have no inflation pressure out there. That may start to change. As we saw the reaction in the markets when we got the cpi number last week, so if we see a bill, yesterday the new york fed released Consumer Expectation survey and actually picked up for the first time in some time, some of the story will change. We have seen most of the action now at the long end, 530 as you mentioned moving much further than the shorter end, so it is really kind of an inflation and where does the bank go from here story. David we do not see the inflation pressure just yet, so why would they raise at all . Tracy i disagree on that point. Maybe not inflation in the hard data, but there is an uptick in the measures of expected of expectation. A lot of the flattening is soing from two year yields, clearly there is a growing sense of belief in the market that maybe we will see inflation that will shift the fed closer to their target, where tickets tricky is whether we start to get the inverted curve and many response from the fed. Mike at this point over the last couple days, even though we have seen narrowing, it has gone up and it is higher than it was at the close. David now europe, that is our third story. The ecb Vice President has warned overnight that the euro could be getting ahead of itself. I am concerned about sudden movements. It declined in september. Another member of the governing council said maybe we will stop buying bonds all together in september, so what is going on as we look toward their meeting next week . Mike it is trading relative Interest Rates and value at this point and the question is do they speed up the end of the qe bond buying, and there was a debate whether they would end in september,r go on to they have started to make bets on the euro that is worrisome to the central bank. I bought of i brought a chart. Here is the problem, if it continues to go up, the economy takes a hit. You start to see the job on a little bit, but nobody is job own a little bit, but nobody expects to change policy the next meeting. Alix we have verbal intervention from the ecb, two members saying something about the euro being overvalued today and we have not seen much reaction from the currency itself. It is still 1. 22 against the dollar. That is despite the verbal intervention, despite the wobbles over the german coalition, despite the italian election risks, spanish political upheaval, the euro is holding on. Pretty amazing. And again, toss in record long positions on the euro, according to the data, you may have thought maybe if everybody was bullish on the euro it would be vulnerable to downside pressure, but still hanging on. Do not expect them to make policy changes next week, but expect talk on whether mario draghi will join the people who are trying to talk down the euro. David we will see that next week. Doubtful. [laughter] david thank you very much Tracy Alloway and michael mckee. More on the concerns over the euro, coming up, it had a closer look at the eurozone economy. Alix bank of america, pretty solid quarter across the board, of 4 10 of a percent. We will break down what to Pay Attention to. Fixed coming in solid. This is bloomberg. Next the ecb meets thursday to review where it is going with Monetary Policy and we are hearing from some counselors about whether inflation hedges really that inflation is really returning and when they should end the bond buying program. Welcome, simon. Good to have you on the side of the atlantic. What are we looking at in terms of inflation that may influence what they say and not what they do . This is the backdrop of the debate, this spilling over into the public domain, whether they should continue the quantitative easing plan b on september plan be on september. We saw a group come out and say it should stop in september and in now increasingly we are seeing the doves starting to take flight and talk about inside the euro, signaling they are not keen on the stop in september. David henson over the weekend said maybe we will stop altogether in september, now we have others going, not so fast. Is that a real division or are we reading too much into it . Much bigger than the one at the fed. Traditionally it was the hawks that were the most vocal, being interviewed. Fromey thing is, we heard constancio today and we have not heard from mario draghi, obviously the president. Maybe we will next week, where they come down on the debate will be important to the economy. Alix when you talk about fundamentals, that is inflation, but the stock market, here is a chart of the cyclicals, you can see the outperformance throughout the whole year of cyclicals in particular, so are we seeing a stock market started a discount a strong european economy, is it moving ahead of other indicators . This is a good problem for the ecb. Long ago, we were talking about the future of the euro, worried about greece, remember the brexit discussions, it was argued by some of the british side, why would we want to be attached to a corpse . Now we have a strong euro area, we will look at the negotiations going on and whether the wages will pull up, but this is a good problem for the euro area. That we did not think would be underway this time after. Alix stock bond options across portugal into germany, is that reflecting worries about a german government, the italian election, or those fears percolating . Absolutely, politics will play a role in the economy this year like last year. There seems to be less of a concern that politics will kick the euro economy off track. David between italy and germany, what is the biggest concern . Italy will always be a longterm concern. Alix simon kennedy, love having you on the set. Coming up, we are minutes away from the Goldman Sachs fourthquarter earnings. Here is how they are trading in the free market. They are up 1 10 of a percent. Billion, that would be a decline for equities, one . 5 billion and 1. 5 billion, we will break on the numbers as they cross. This is bloomberg. Alix this is bloomberg daybreak. Im alix steel. Moments away from Goldman Sachs releasing their earnings, heres where we stand. Points inup by 143 premarket, recovering from the selloff in the close yesterday. European stocks are relatively flat. And the doves taking the new cycle by force when it comes to qe in europe. It is all about the flatter curve in the other asset classes. 46 basis points is how we trade steep selloff anywhere we look at the bond market, particularly the front end. Vix finally making it back onto my board. It was gone for months. It hit 15 yesterday, crazy, now back to 11 . Nymex crude down by 4 10 of a percent. Bank after bank upgrading the shortterm price target for oil, now 70, or 75, potentially 80. That makes me skeptical. David 11 to make it to the board. Alix that is a low bar. David Goldman Sachs earnings will be out any minute and we welcome aleshin williams, Senior Analyst for u. S. Banks, as well as the global vice chair of good to have you. Set the stage for Goldman Sachs. It should come in a second. How does it fit into the larger picture we are seeing unfold for the banks . Taxes we are watching broadly, and we will see if they give any kind of guidance around the tax rate, which will be the most important thing for 2018, that is the number that we have gotten from a few the banks. Tradingd, text income is most meaningful to Goldman Sachs revenue and of their earnings. Theyve had a tough year, part of it was because of the client makes, and also not navigate in the markets well. They have made changes, commodities had a tough year, but investors will be looking for signs of improvement. So it is the performance. But keep in mind, we will see a big drop probably, they do have a strong quarter, both goldman and Morgan Stanley are stronger than the others, so that revenue is expected to be down like 35 . David they did signal that. There was a report that they would be down in fixed. Alix i am pretty sure they did not want that to come out before earnings. Alison i think it is about setting the bar of expectations. The other notable thing, we sell revenue estimates declining for deutsche bank, they announced the 22 trading back and trading dropped and also deutsche banks revenue falling back. Alix you have literally traveled the world, beth, and have talked with ceos and business leaders. When reason bank of america stock is not have in the pop have, we have not heard about the effective tax rate and what it will be. What do you hear about tax reform . Beth generally it is a good thing. We have seen 150 Companies Already announcing the increase the wages and bonuses, so i think we was a big pop and the market has priced a lot of it in. People are concerned about, you can undo a lot of the good that has been done with trade and what gets done with trade and immigration. So i think there is nervousness in the Corporate Community of what will be the u. S. Stance on trade. David how does it happen that the president came in as a candidate, talking like a bull on trade, but on a practical matter, has not really done that much . Bite to comethe down the pike . Beth they are worried about korea, nafta, these are things essential to business. This crosses the canadian border. Is important for companies, so uncertainty around it is important for business. We are in an uncertain environment with trade and that is not good for business. Alix there is a question as to if we will see more shareholder returns or Companies Compete away tax reform, or do we go to wages, what is your best read . Beth this is a structural change in the tax system, not a tax cut, so every company that we work with around the world is rethinking the structure of how they operate, where it manufactures, where it deploys capital, and whether it brings the money back and it deploys it into the u. S. In repatriation. We have money offshore and a lot of it will come back. What i think is interesting is to watch other countries. We immediately saw after the tax reform, we saw china provide relief for Companies Investing in china in certain sectors, canada is looking at their tax law, india as well, so ill countries around the world are going to react to the u. S. Tax reform. Companies have to deal with that. David we see a broad consensus that there is as a result of the tax reform more investment coming back to the United States, but it can be distributed to the shareholders, employees, do you have a sense of having spoken with business leaders, the breakdown . Beth when you combine the decreasing rate with the expensing, immediate expensing, it really brings capital back. It will come back also win it has things to do with it. I think this will be interesting to see, we would expect a lot of opportunities to bring investment back. We are working with companies, foreign companies, looking at locations in the United States, so it has garnered a lot of attention and i think it is a good thing. Alix and Goldman Sachs now out. Fixed trading come of the number we are watching, at just 1 billion, estimates for 1. 3 billion. Investing bank revenue, 2. 14 billion, but the fixed number looking light. No loss was 5. 51 a share, idea what that encapsulates yet in terms of tax reform right up. Overall trading revenue with 2. 37 billion. So, i do not know, aside from look like adoes messy quarter to take a look at the stock. Up to tens of a percent up 2 10 of a percent. David they look good in the Investment Banking. Fixed misses estimates. They did report a loss of share, but that could be tighter taxes. Alix it is unclear. David ive not seen the number yet on exactly what they will write off for taxes. Alix it looks like Investment Banking was really the strong thing for Goldman Sachs. Now flat in premarket as well. We need to take a look at the report. Alison, we are looking at the press release, anything jumping out . Alison a miss on fixed income trading, something people have been watching. And we did get the story yesterday about commodities, but that is small in terms of the overall picture, so strong equities training trading, right in line with they were printing out. David they said about 5 billion, so a little bit better, but compared to the 2. 9 billion it was for bank of america. The equity40 on 9 , i think, m a up that will be a focus. Goldman sachs has a great insight into clients and what the corporations are thinking and i think we want to hear more about what is the outlook for m a and will we see a pickup. There is talk about m a ahead of the reforms, will we start to get a lift. They on an annual basis, have numbers for markets and they said they originated over 2 billion worth of loans and they grew their online deposits by 5 billion, i do not know which quarter, but they are growing that relatively rapidly for something that just started. Alison they have talked about that. Keep in mind, goldman is already a leader, so m a, they are a leader in that business it is so many businesses, so in terms of future growth they are focusing on markets, where they can basically grow rapidly but still be a small part of the market. David it will be a story of what is coming up next year. As i understand the numbers, they are reporting, even forgetting about the tax losses, earningspershare 5. 51. It is well off of what they projected if you take out the tax laws. I would think that the story that Lloyd Blankfein will have is we got it taken care of, but is going to be great. And lookingigging for the effective tax rate, but they did say excluding tax legislation the effective income tax was 22 for 2017. That is the most so far, bank of america has not come out with an effective tax rate for the next year. Alison it is wells fargo into jpmorgan talking about the 19 rate. The other thing i am looking at with goldman is the expense line, so obviously there has been cyclical pressure in the business, but they can offset that with a variable expenses. Revenues up 5 on the year and expenses only up 3 , so holding the line on expenses. Theyve had a couple programs they have completed and they talked about moving employees to lower cost locations, this has helped them control costs. David x income, according to what you are saying and where fixed income came from, net revenues and currencies, interestrate products, net revenues in a mortgage were also lower. Alix it was bad at the end of the day. David across the board. Miss on a number that people had really brought down the expectations for, down 50 yearoveryear. That is setting a low bar for the other companies. Alix here are the numbers you need to know as we go to break. Goldman sachs, down in the free market, revenue coming in at 1 billion, everything was down, currencies, commodities, fixed income products as well. Trading revenue also light, it was the Investment Banking revenue that helped prop up the index, 2. 14 billion. The headline number, they had a loss of 5. 51 a share, but if you back out according to taxes, that was a gain of 5. 60 5. 58 a share. We will bring you the numbers as they cross. We do not have commentary on tax reform, other than Lloyd Blankfein saying we are good to go for our clients. We will keep you updated. Alison williams, thank you very much. And beth is staying with us. David and coming up, David Einhorn says he understands investors are frustrated and he is frustrated. We will talk about why. And as you commute in, listen to the radio, tune into tom keene and Jonathan Ferro, and then Jonathan Pryce will join from 9 00 until 10 00 a. M. Live from new york, this is bloomberg. This is bloomberg daybreak. Kailey you are looking at the Hewlett Packard enterprise greenroom. , cio for, david herro international equities. Now to your Bloomberg Business flash. Google tightening up the youtube rules to clean up for advertisers, they were not imposed criteria on what kind of videos can earn money. They will introduce a new vetting process for top shelf videos it offers advertisers. Managementeld preparing an offer for i do beauty that will value the commercial Real Estate Company at 4. 7 billion, that is according to people familiar with the matter. Iwg owns almost 3000 locations. Brookfield is an asset manager in canada. And mark cuban bringing bitcoin to the National Basketball association. The owner of the Dallas Mavericks says fans can use it to buy tickets next season. Last june, he said it was in a bubble, but he ended up investing in the cryptocurrency later in the year. That is your Bloomberg Business flash. David we turn to the wall street beat, where we cover three things that wall street is bugging about. David einhorn writing about frustration with performance. There may be unintended consequences on what the tax overhaul has done with overseas assets. And winning the jackpot, outperforming in 2017, mr. Eagleson coming on strong. Theing us is jason kelly, executive editor for global television, and still with us isbeth brookemarciniak, global vice chair of Public Policy at ey. We have to mention goldman. We have to talk about earnings. David i said that it took out the tax effects, they had a beat, i apologize because i read it wrong. We will see, it looks like the market has not made up its mind yet. One thing that jumped out, i think it was mentioned before break, Investment Banking seems like the clear winner, i wonder if iit is a precursor to more ipos. It seems like a healthy part of the business. I am not sure if companies will get more active now that there is clarity on the tax side. Certainty always matters and we see the biggest balanced growth. Beth this is balanced growth, all the g20 countries have seen growth for the first time in a long time, so there is a lot of growth around the world, and a lot of appetite. Clearly goldman is in a great position. We have spent time with them over there and we know that theyre chomping at the bit to do bigger deals. Alix they are like Investment Banks, come help us over here. [laughter] do not look at that fixed. Alix in terms of fixed, we want your perspective, do you and dissipate regulation anticipate regular jim being eased, so that the banks can take on more risk so we will see more cyclicals Going Forward, it will not be a blanket story. Beth regulation is easy, not just in the United States but around the world. There was a sense of overcorrection coming back and i think it is seen as a positive. Going out of order a little bit on the wall street beat alix what . Breaking the rules. It does make me think of this really well read bond story that is out there, because off shoring has been a huge issue for a Big Companies and obviously it is something that big banks care about my because it is business. David there is a story in the bloomberg which basically says they had all these assets offshore, the Tech Companies and pharmaceutical companies, and now if they can bring it back, then maybe they do not have to hold the bonds and what does it do to the bond market over all, because not just government bonds, but they have purchased other bonds. 3. 1 trillion has been offshore it and is sitting in treasuries and corporate. That is tens of billions of dollars in the case of several companies, including apple, thatsoft, i mean, how does play through the system is indeed there is a sort of big selloff, as it were. Beth the bigger story, the more interesting story, is the cash will come back. In the story it says it will go to shareholders, but i do not agree with that. Because of expensing rules it will be invested. Really important is a letter wrote rotated wro yesterday, saying the government has not stepped up to make sure that we are reach raining workers of the future. We will have economic growth, it is balanced around the world, but we will have that growth and so many of our people will not participate in the growth. And if governments and companies tonot incentivize retraining be job ready, we will have a problem and we will have it three years from now. And as everybody goes up to davos, it will be a big topic of discussion. We have to get the cash, that is what larry fink is calling for at blackrock, for the companies to take on this responsibility of retraining. How much is that resonating among his peers, do you think . Is he a voice in the wilderness, or is he galvanizing people around the idea . Beth we have a project, project indictment, we get asset creators and managers signed up to had we create metrics around longterm value . When we are looking at goldmans earnings, what is the longterm value to goldman and what are they bring into the market. How are they describing that . Companies want to report it, because stakeholders, goldman is responding to stakeholders, but what are they saying and that at the broader picture and that is basically what blackrock is calling attention to. To go quickly to one of the other wall street topics, David Einhorn, i mean, larry fink is in the middle of one of the biggest existential debates on investing right now, active versus passive. When you look at the active managers like David Einhorn, dare i say this is says, frustrating to our partners and certainly frustrating to us. I am really sorry we lost, it must be hard for you. [laughter] david it appears with eric and killed on is the bubble basket, including tesla, and caterpillar, a big bet against caterpillar, which is all of a sudden ahead. And shortening in as well. Alix that shows how hard it is to make money for investors, how hard the macro environment ended up being. We have talked about the macro environment, those who did not do well last year because of the macro environment and the lack of volatility. Now trying to stitch it altogether. If we have more dealmaking, companies that are spending money, not just on some of the issues you have been talking about, beth, but really doing deals again, does that make it a better market for some of these hedge funds. David you hope some of the deals will support infrastructure and retraining of workers, which in the longer term, not just a quick hit. Clearly, at least some of the will is there, we will see of politics lineup. We will see a politics line up with the regulation that youve been talking about, and do companies have the incentive to do all these things. Beth every company is being disrupted right now, so everybody is looking for innovation. The banks they are looking for something. David ok. Jason kelly, thank you. Beth staying with us. Alix i am taking a look at bank of america and Goldman Sachs. Headlines for bank of america, the cfo saying they have seen effective tax rates at 20 , so bank in line with where citi and jpmorgan were. Goldman sachs, this is their worst quarterly fixed figure in nearly a decade. The last time i saw 1 billion on a quarterly basis was in the middle the financial crisis. Other areas coming in strong, this number resonating. David no question. Speaker paul ryan setting up a vote on thursday to keep the government open, what i am watching today. Coming up next from bloomberg. David this is what i am watching. House speaker ryan has a proposal that is Going Forward in the have to try to keep the government open and basically what he is doing is giving something to everybody, to the democrats, extending the Child Health Care program, and still with us is beth brookemarciniak global vice chair of public , policy at ey. This is to keep the government going until february, not forever. But he is playing hardball, saying democrats, i dare you to vote it down given that i am taking care of Child Health Care. Beth there are things for the democrats and they are trying to get a deal, but it is a great example of the weather washington works when it is not working. Trying to do significant policy reform in this fashion is not actually the considered way to go about it. David he importantly left out of the deal anything to do with immigration, it does not deal with the dreamers or the wall, so the issue is there is a deadline on the dreamers, 800,000 people who do not know if they can stay in the country. Beth business cares about this and the administration has heard about it. We have 45 people who will have to leave the country if it does not get done. David what are you telling those people . Those are real people. Beth they are real people and they are nervous, scared, they have been that way and he tried to coach them through it. Fact that a party that controls the congress and white house could actually shut down the current down the government seems farfetched. Which is why the market is not taking it seriously. What is the breaking point where we will say this is for real . 12 01 on friday . Beth in some sense. You think about what people care about, they care about whether they have a job, they care about whether they are being trained for that, they do not care whether the government shuts down. So in some sense, you know come of people have tuned it out because everybody thinks they will come through at the last minute with a deal. David the thing i do not understand is who is against the dreamer situation . The majority of people if you polled them with say let them stay, it is children. Businesses are ok with this. What happened to the connection between donald trump and the business community, i thought that was part of the reason he was elected. Beth i think the issue of how it came at the being and is it the right way, and what happened this week said everything sent everything back and has us talking about who said what to who. David how important is the issue to the business community, how important is the immigration with the various issues pending . Beth it is very important, talent is our priority. Getting the best talent. That talent comes from a lot of countries, some which have been described unfavorably, but it comes from everywhere and at the key is Diverse Talent and eu do it through the visa programs. David the president , even his unfortunate remarks, where connected to something broader, let people in on merit rather than a lottery system. Businesses can get behind that. Beth they can get behind security, but we need top talent. Alix it was a real pleasure having you. Ey. Brookemarciniak from good perspective on politics as well. Bank of america takes 3 billion hit with the gop tax bill and the worst quarterly numbers in nearly a decade, and the u. S. Yield curve flattens. Not so fast. Rally,ter on the euro saying the numbers do not measure up. I am david. X Goldman Sachs a little bit flat. S p futures up by nine points as ita crazy trading day sold off into the close. Forceves come out in full. Yields moving higher, crude getting hit, every single major bank upgrading shortterm forecast. David how about that. All because of taxes . Alix for oil, that would be amazing. Back to the business world. On capitol hill House Republican leaders are trying to come up with a stopgap that would prevent a government shutdown. It would also delay some obamacare taxes. Any plan cannot pass unless it has some democratic votes in the senate. A former cia officers suspected of helping china has been arrested accused of unlawful protection of National Defense information. Lee has been living in hong kong. Hasondon Heathrow Airport made a number of proposals aimed 3. 4 billion dollars from the cost of expansion plans. Among them, a runway that could be built to three different lengths. The idea is to pay for the changes without significant hikes. This is bloomberg. Julie thank you. Bank earnings, the big highlights, the worst quarterly fix of revenue since the financial crisis. Bank of america eking out a gain. Brian talking about cryptocurrencies saying people could buy it, just not at bank of america. The effective tax rate should be 20 . More of a breakdown of those results. We are joined by alex and williams. First blush for you, what was your biggest take away . Cases there were noisy results. The results were at least as good as we were expecting if not better. These are pretty solid results looking in the rearview mirror. Expecting a composite outlook. Alix what do make of that revenue from goldman . That is obviously not encouraging, down 50 yearoveryear. It was worse than expected but not horrifically worse than expected. In an environment where you do a lot of market making, not just a flow trading, your primary clients, nothing is going your way. It was certainly not a good quarter but it was not that much worse than what we thought it was going to be. David Going Forward, what is the narrative . Diversify . Going to what goldman has pointed to is to achieve a more balanced balanced nothing is going to happen overnight. Been hitting record lows across different asset classes, especially goldman. They are going to continue to focus on that. We will hear more about the outlook but it is tough to say when that picks up. The other thing, there is nothing about an episodic charge or mark to market. David episodic. Would be surprising if they did not have something related situation. Ticular i guess we are going to want to it does,t that, and if where does that live . Word . T is the path for forward . The details on stein are not broken out. It looks like the road to the equity trading line. The future for goldman, i think it will get better. This is as bad an environment as you can get. I think that will turn around from as environment standpoint. We will start seeing this lending, something goldman shied away from. Now they are a Bank Holding Company they have the deposits. I think it is a little bit of both. I would caution about investors taking that and extrapolating forward. That could be a lot higher. Lets talk about the markets. 2 billion worth of loans. Deposit growth as well. Do these stack up with the rate of growth you would see to diversify more quickly . They are on pace for what they have guided to. When it comes to getting in the consumer lending, you do not want to see them grow too quickly. I would rather see a measured pace of growth. As far as timing, the bigger issue is a better trading and Capital Markets environment. You aree when may be talking a few years before we see that flow through. Alix fair point. That the the question, if you have banks taking on more risks, because regulation has eased, do we see differentiation . It is two different things. Broadly, across businesses, that does tend if we get easing regulation, we do tend to see these things happen. The bottom line is, for volatility and last year everyone was excited we were seeing the bottom. We have returned to low volatility. Saw brexit or trump becoming president. As investors we look at what is priced in, is that sustainable, is that permanent . Believe it is permanent but most would believe that it is difficult, even though we cant predict what causes the upturn, that is likely. The number is ugly but look at the cost side of things. Give them some credit. Holding the line on cost, that is what people look for in terms of the banks. The costadjust structure to help support profits . All the big bang cell. Who is doing the best . Who are you most worried about . They are looking at the , youts this quarter so far have seen good results from jpmorgan which are priced in. Good. Results were very goldman coming in behind them. You expect that to be the case. The bigfor word, of banks goldman is the one i like the most. David ok. Thank you both very much for being with us. We want to report on rollsroyce. They will have a major Strategic Review of simplifying their business. To havel restructure cost reduction. This is not rollsroyce the car company. And is jet plane engines turbines. They simplify going from five lines down to three. , they are notme taking down their forecast. They have a major restructuring. They are up substantially. This is jet engine rollsroyce. Look at the implications on markets, coming up next. This is bloomberg. Alix this is bloomberg daybreak. Rebounded, rising 3 in the final two months of the year, tiffany helped by a new were home and accessories collection. Short atales came up burberry. Revenue up 2 , half of the growth predicted by analysts. The ceo announced plans to boost the brand image with flashier stores and a focus on handbags. A deal that would shake up the global event market business. Both companies are based in london. In former runs 200 trade and consumer shows annually. That is your Bloomberg Business flash. Curve has beend growing flatter and people are paying attention. Think the performance of the evolution of the yield curve is maybe the number one issue in the markets today. We need to watch it. Are in late stages of the economic cycle. Everything is fine. How are you going to play this . I will be watching the 10 year treasury. We are dancing around that basis point. By the time you get to the end of this year i think you are going to be talking about a flat yield curve going into 2019. David we welcome jerome schneider. One of the funds he oversees, the enhanced maturity etf which was rated gold. Congratulations on that gold rating. We are already below that. That was not that long ago. We will put up the yield curve. Really has a flattened quite a bit. What do you Pay Attention to . Expectation of where rates are versus the fed expectation. You can see that versus interpolating where the markets are now. Past 34een over the toths, calibrate higher really take into account the expectation of 23 rate hikes this year. As a result the long and has not come up and people there has specificallycern, from 80 to 70. What really investors should be paying attention to, what is the fair value . Today, 2. 03 . Ballpark it is in the of 2. 3 basis points. Being recalibrated is the fiveyear point, the 10 year point. And the size curve is 34 basis points. The fiveyear point is taking into account term premium, yields are lower. That fiveyear point of the curve should be calibrated. What is the fair value . Toright now what we need think about, the market has come a long way of the front end of the yield curve. It should continue to increase. Investors should be poised to take advantage of those increases. Not all investors have done that. Think about how the fed and the markets react further out in the curve. That has not been a fully appreciated. Maybe the infrastructure policy, Global Growth continuing to come online, these are things that can grow growth even higher. It is something that is not entirely priced in. Alix what is your 10 year yield . We do think it is higher from here. Probably 20 basis points higher. You have to think about the term premiums. Is furtherimpacts signs of inflation moving higher. C you position a portfolio for higher inflation . Prices, they offer fair value. We do find attractive value. We do think Interest Rates will continue to move higher but there is a proper place for fixed income. Finding ways to earn that yield, moving to fixed income, moving s p yield. Julie into bonds. Exactly. You see people looking for derisking or trying to find ways to capture the yield increases. Floating, shorter duration strategies, in terms of fixed income. Specifically that allows people to earn that yield as rates recalculate. You dont think it will invert. No. We have several rate hikes. We have a couple of things in our favor. Additional supply coming. Back. D takes a step investors are ones that will pay for that. Ultimately that shapes the yield curve further route, and finally, term premiums. See itu will actually not necessarily time to sound the alarm bell. One of the things we have been focused on, repatriation. A story of supply and demand. Specifically because of the fact you have repatriation, keeping spreads tighter. You have investors like ourselves looking at earned income from corporate spread. They dont necessarily make investing further out of the curve more attractive. As a result you might us not be part of the corporate sector at this point. Thank you for coming in. To getge book coming out an indication of what the financial conditions are now. Consider next, breaking up the company in the businesses. Shares lower in the free market. This is bloomberg. Alix a rough day for ge, shares fell for the most in two months after a charge related to the insurance portfolio. Shares continue down. He is considering breaking up the conglomerate. Next,g us for what is brooke, who would buy these assets . I dont think it has to be a sale. There is not really a conceivable buyer for any of them. Ge has one of the top market shareholdings in most businesses. Maybe looking at what they did , yousynchrony financial have publicly traded separate entity, this is something siemens has done with a number of businesses. Julie what does it say whenvid what does it say it is better to be away from ge . Said,t they have always these businesses Share Technology and resources, and the invest on a greater scale on these operations. The problem is you still have such a diverse conglomerate they get missed. There is no plausible reason why the challenges should have been this severe as they were. I think at that point you have to say if we had more focused businesses with Management Teams with that specific unit, could they be better at responding . David is this an indictment on the theory of putting the companies together or not putting the right Management Teams together . Question. The eternal was it jack or jeff . But hectured did work put some things in place that may be hamstrung jeff when he took over. That when i do think ,ou look at jeffs track record significantly doubling down on markets that are now giving ge significant headaches that goes back to him. Alix baker hughes. How much of this is a ge specific problem . They just got too big than the recession hit and they have not been able to recover . A lot of this is a ge specific issue. This is a trend we have seen across the industrial sector. Maybe we do not need to be in , all aviation, health care of these different things. That was the mo of industrial companies. More and more are saying maybe we just say what do we want our identity to be, maybe we should refocus and do this one thing. We have seen a ton of asset sales. That is only going to increase given the tax legislation. More now going to be feasible. You have less of a tax on the gains. Alix exxon resisted and it turned out good for them. Thank you. Coming up, we will speak with , the banks biggest holding. We will discuss. This is bloomberg. Erg. Alix this is bloomberg daybreak. Yesterday, a little bit more optimism in the market. Dow jones up by 100 points in the futures market. That fell into the close. Lets see what happens with any reversal today. , 1 22,o dollar weaker taking a look at the curve, 46 basis points between five and 30 spread. Board, made it up to the after we had the selloff that came out of nowhere. Down to 10 sub 1 despite the fact that every major bank has upgraded the shortterm forecast. The sick trading revenue for the quarter was the worst quarter since the financial crisis. Bank of america little bit different. Affected tax rate. David we are not talking about that yield curve at all. About taxes, everything else. Alix you have Net Interest Income of 11 . Say there might be sooner or later. And now an update on what is making headlines. A small sign of cooperation between north and south korea. The delegations will march under one flag at the Opening Ceremony at the winter olympics. They will form a joint womens hockey team during the games. Annan steve bannon has been subpoenaed by robert mueller. The House Intelligence Committee has issued its own subpoena. The white house asserted he was barred from answering questions. Foresa may is trying to pay relationser cracked between the United States and the u. K. Reports he will not be invited wedding. Harrys say she is not responsible for wedding invitations. This is bloomberg. David back to the Bank Earnings now. We have people who believe in joining us from chicago, banks are among his top holdings. Good to have you here on today. As you have look at the Bank Earnings we have a little past the midpoint. What does this tell you . We are in good shape. I managed mostly international funds. Interest rates seem to have bottomed. The economy is strong. It is positive for credit expansion. Should see a good tailwind for Bank Earnings globally Going Forward. Compare and contrast, u. S. Versus europe. You were a believer when others were not. We have the tax cut that seem to be pulling through. One of the things that has scared people, the sovereign debt crisis, the greek crisis, people thought there would be massive sovereign defaults and the banks would get killed, and the european banks needed to restructure. Happened butngs none of the bad things have happened. There was no sovereign debt default. Now we are starting to see a meaningful expansion. Those things i mentioned, better credit expansion, this is what growth and gives you. , we seeafter a decade europe growing. From a capital and regulatory perspective these banks have thought a headwind. Growing up against a harsher regulatory environment. You are seeing a relaxation of the regulatory environment. For the most part they are fully capitalized. The price you were expected to pay are being asked to pay by the market, banks traded significant discounts to the market. Alix we know you own a squeeze. Are you adding more . We never talk about what we are doing from a Current Trading point but Credit Suisse is undervalued. Why . It has gone up last year. Restructuring, basically Credit Suisse was a restructuring story for the better part of two or three years. They were moving their managerial focus from the Investment Bank to the private bank which delivers a good annuity like income string. They have strong niche is and capabilities. At awere just looking location in a way which makes a lot of sense. Is where you deploy capital. This restructuring took time. We are going to see the credit durable much more income stream. I dont think that is reflected in the market yet. They have planted a flag and are really going for it. , givenre a lot of points the risk involved we want to go into that business. Though they have more competition coming . Oddly enough in areas where they are the most strong, in asia, they had less competition. Ome have retreated they have retreated because they needed to play capital elsewhere in their balance sheet. When of the things that does help them is having that investment tank sidebyside. If you are a wealthy industrial family and you are going to spread off of business there is a strong synergy between what happens and that investment tank, and how they manage families. This is bloomberg. If there wereed banks on your radar that you are looking at . They offer the similar time of value. If you look at our portfolio we carefully tried to comb through what is attractive. There are other banks that might look pretty good. It is the bank that has been restructured in ireland. Ireland has a great economy. Haduld be surprised if we added another financial. We do not own it but i think it is a relatively wellmanaged business. A fairly have had extended discussion without any mention of the ecb Monetary Policy. When we saidng ago that was hurting european banks. It gets in the way of making more money. How do you see the policy Going Forward . Will become more beneficial to banks . Negative, aseen a it has compressed spreads. We have low to negative Interest Rates that really hurts lending spreads. The ecb is running dr. Jekyll and mr. Hyde Monetary Policy. They are injecting liquidity, then lower Interest Rates. Make up your mind. Now we are starting to see consistency. With the european economy starting to grow you will start to see the ecb take their foot off of the liquidity pedal. Alix i want to interrupt, you do have a 4 stake in general electric. Breakup . Clearly in the last decade ge has been horrifically run. There is new management place that is working hard to take a strong collection of businesses and to create the most shareholder value. Have, thesees they are very strong businesses. Industry leaders. They need to be properly managed. We believe the Management Team is in place. 10 years of mismanagement takes time to clean up. Whether they decide to spin off these things is up to the board of directors. They will be able to distract extract the management. As you describe it there is value that is not being reflected. When you look at a company, how do you decide whether you were better off or are they stronger together . What makes them stronger together than individually . Sometimes when you think that you are you have a safety net , sometimes the fourth business that is weak is heavy enough to cut through that. We have seen this before. This will hurt or mask of the strength of the others. Ultimately they will get to the bottom of the problems. It does not make any sense to have these together. Really it makes decisions that leads to the greatest value creation. We are not the type of owners who want a quick share price. Business,king for any sustainability of value creation. That is the management working together. This is their job. This, we tryhave not to invest in the business. Tune in to our colleagues from 7 00 to 9 00. That is bloomberg surveillance. From new york, this is bloomberg. This is bloomberg daybreak. You were looking at the Hewlett Packer enterprise green room. Coming up, gerard cassidy. Now to your Bloomberg Business flash. Google is tightening its youtube world to clean up the site for advertisers. They will improves impose stricter criteria on what videos that can earn advertisements. Ads were found next to pilot and racist videos. And the worlds biggest loser, venezuelan bonds let global losses. 12 . Have returned that is four times what investors have gotten. Mark cuban is bringing bit going to the National Basketball association. He says fans can use that going to buy tickets next season. He said itlast time was a bubble of it now he is investing in it. Us, the cio for international equity. The top five holdings, a monster run so far but still off of the high is that it saw in its trading debut. How much more does it have to rerate . We think glencore is trading at a discount to its value despite the fact that we have been owning stocks since 2018. We saw it go into the 60s. With the companies that with the company has been able to do is create a lot of value. Better trading operation, better trading results. A third is trading. , all ofy commodity these things have gone and done very well. The largest commodity as far as revenue, copper. There is still room in copper by the way. The copper cost curve, it is extremely steep. So at a higher cost. Glencore is one of the largest producers of copper in the world. We are very happy with how they are positioned from the commodity perspective. Then they have that trading operation which only goes from strength to strength. Betterthe idea was a Commodity Trading separation with a commodities company. It looks like it is working. Where is the growth going to come from . What is undervalued . Throughare going strategic relationships, as you have seen. They did a deal with the russian year. Mpany last most of that has been unraveled. They still have the trading operation and the trading rights. They constantly do deals like this. , it leads toes more strength. Rebounded from the 50s. They have a broad portfolio of minerals and we still think there is room in some of these things. Would you say your position is completed this point . We never like to discuss. Glencore was at 70, 80 p. Ownit is at 400 and we under 4 . Years twoimmed two thirds of our holding. We still think it is substantial enough upside the stock is represented in our portfolio. T does not have any upside we trim some but it still has significant upside relative to everything we could be buying. Alix broader look at commodities. We had a monster run. What commodity names look more attractive now than they did . Find moddedd to these. Copper is one that has moved but it is still only retraced a third. It was trading over 10,000. I think copper is still one given that tight supply situation. What we should see is increasing demand. I think copper is one that has more room to go. The other ones, it is hard to see from a fundamental perspective. These things swing like pendulums and dont rest at equilibrium. They often become undervalued and overvalued. David the market is fully priced, some of the commodities that are going to be in huge demands. One of the issues, if this revolution happens. Right now this revolution is being driven by the regulators. The consumers are not demanding these electric vehicles. There are questions about residual values. All kinds of recharging. Until we can get batteries that can be recharged quickly and hold energy safely at the right , a massive electrification will not happen. It is not going to happen next year. Alix how do you play it . It could be a combination. The Car Companies will again flexibility. In international portfolio, and two more in our domestic portfolios. We think those companies, bmw, mercedes and toyota have built in flexibility and done their homework on technology, on what is needed to come up with electrified product if and when the consumer calls for it. This has cost money. We have not been able to reap shortterm profits because they have plowed so much money back in r d. They do have flexibility. But we have to watch for is the battery. Can we get batteries at the right safety and right power density. Alix good to get your perspective. Coming up, the other thing, Canadian Dollar the bank of canada traders position for that. I am also watching bank of theica and Goldman Sachs, by 170 5ter reduced million . All of the details coming out. This is bloomberg. Alix what i am watching today take a look at the loony. By have seen it move down 9 10 of 1 over the last five days. Have a dovish hike . It is expected they are going to hide but what do they say about inflation and the economy . David 25 basis points. Alix we are also watching banks. That is next. This is bloomberg. Donovan im Jonathan Ferro for our viewers worldwide. This is the countdown to the. Pen takes up, low volatility a bite out of goldmans fixed income revenue, dropping to the lowest level since the financial crisis. Volatility remains in washington dc. Republicans aim to kick the can and avoid a shed on this week. And the ecb Vice President verbal. A lets went through some of the scores for you after yesterdays session. By 11s getting firm points, up by 4. 1 . The eurodollar down one third 1. 2219, and the 10 year yield up to basis. 02 basis points, at